Bitcoin Ordinals Explained: The Future of NFTs?

Why should you care about Bitcoin Ordinals?

A single Bitcoin is made up of 100,000,000 satoshis (SATS), and the Ordinals protocol enables the identification and transaction of each SAT with additional data. This technology has opened up new opportunities for Bitcoin, including the creation of Bitcoin NFTs.

Ordinals is a publicly accessible project available on the code sharing platform GitHub. The project is composed of multiple components, including a BIP that outlines the ordinal numbering scheme, an index for tracking the location of each SAT on a Bitcoin Core node, and a wallet that facilitates ordinal-aware transactions. In addition, the project also includes a block explorer for interactive blockchain exploration, as well as a feature for inscribing SATs with digital tokens.

Introduction

NFTs, or non-fungible tokens, are no stranger to the world of blockchain, and have mainly been minted and traded over blockchain networks such as Ethereum, Cardano, Solana, and more. They can also be purchased on NFT Marketplaces such as Bitget Wallet (Previously Bitget Wallet (Previously BitKeep)) NFT market, which plays host to over 320,000 listed NFTs for sale and more than 51,000 monthly active users.

Despite the increasing number of blockchains that support NFTs, Bitcoin's blockchain has always been the maverick. Historically, changing Bitcoin's code has been a daunting task, given the decentralized network of nodes and developers who prioritize network security and do not wish to see Bitcoin's codes being altered - hindering the adoption and growth of Bitcoin NFTs.

However, the Ordinals project wants to steer away from this age-old stereotype, believing Bitcoin's blockchain to be an appropriate platform for NFTs.

In February 2023, the Ordinals protocol facilitated the creation of over 100,000 Inscriptions, which included various forms of digital content such as images and video games. The Ordinals protocol enables the identification and transaction of each individual SAT with additional data, providing a new avenue for NFTs on the Bitcoin blockchain.

What are Bitcoin Ordinals? What are inscriptions?

The smallest denomination of Bitcoin is called a SAT, named after the pseudonymous creator of Bitcoin, SAT Nakamoto. One BTC can be subdivided into 100,000,000 SATs, making each SAT worth 0.00000001 BTC, or roughly 0.00027 USD.

Ordinals is a numbering system that assigns a unique number to each individual SAT, enabling its tracking and transfer. The system works by numbering each SAT in the order it was mined and then transferring them from transaction inputs to transaction outputs using the first-in-first-out method. The name 'ordinals' derives from the fact that both the numbering and transfer schemes rely on the order, and through this process, each SAT can be made unique by etching extra data on to it via a process called "inscription".

This "inscription" process adds an additional layer of data to each SAT, allowing users to create unique digital assets on the Bitcoin blockchain.

If this sounds familiar to you, it probably should. While we often associate the term "NFTs" with vibrant cartoon characters or pixelated primates, the defining traits of NFTs are uniqueness, verifiable ownership, and authenticity, all of which are achieved by Ordinals.

Yet there are a few key differences between Ordinals and conventional NFTs.

Ordinals vs NFTs

Although both types of tokens serve as unique digital assets, traditional NFTs are often built using smart contracts on various blockchain platforms, such as Ethereum, Solana, Cardano, and the like. Additionally, the assets represented by NFTs may be hosted on different platforms, whereas Ordinals are directly inscribed onto individual SATs, which are then added to the Bitcoin blockchain.

In contrast to traditional NFTs, Ordinals reside entirely on the Bitcoin blockchain and do not require a sidechain or separate token. As a result, Ordinal inscriptions benefit from the simplicity, immutability, security, and durability of the Bitcoin blockchain. Furthermore, the ordinal scheme's unique approach allows for the individual SATs' unique identification, facilitating the creation of a new class of Bitcoin-based assets.

Ordinals Structure

Ordinal numbers are represented in various ways, including integer notation, decimal notation, percentile notation, name encoding, and degree notation.

Integer Notation

In the integer notation representation, each ordinal number is assigned according to the order in which the SAT was mined, resulting in a string of numbers such as 2099994106992659.

Decimal Notation

The decimal representation is composed of two numbers, the first of which is the block height in which the SAT was mined, while the second is the offset of the SAT within the block. An example of such representation is 3891094.16797.

Percentile Notation

Percentile notation, on the other hand, expresses the SAT's position in Bitcoin's supply as a percentage, which can be represented in the form of 99.99971949060254%.

Name Representation

The name representation of ordinal numbers involves encoding the ordinal number using the characters a through z, resulting in a name such as SAT. The various representations of ordinal numbers enable the identification and tracking of individual SATs, which can be inscribed with additional data, making them unique digital assets.

Degree Notation

Degree notation, on the other hand, uses a format such as 3°111094′214″16797‴, and represents an ordinal number in a way that makes the rarity of a SAT easy to see at a glance.

Wait, rarity of a SAT?

No, you did not read that last line wrongly. The immutability and uniqueness of each SAT has, of course, caught the eye of collectors and punters everywhere. In order to denote the rarity of different SATs, prescribed ranks have been established based on the total supply of Bitcoin.

The following classifications have been established to designate the rarity of SATs based on their position:

• Common: Refers to any SAT that is not the first SAT of its respective block, which currently sits at a total supply of 2.1 quadrillion.
• Uncommon: Refers to the first SAT of each block.
• Rare: Refers to the first SAT of each difficulty adjustment period.
• Epic: Refers to the first SAT of each halving epoch.
• Legendary: Refers to the first SAT of each cycle.
• Mythic: Refers to the first SAT of the genesis block.

Every SAT has a unique name that consists of the letters A through Z, and the length of the name is inversely proportional to the order of its creation. The system ensures that no two SATs have the same name, making each SAT unique and valuable.

For instance, the first SAT ever mined in the genesis block has the name "SAT," while the second one is called "Nakamoto." As the numbering scheme progresses, the names get longer, making them less desirable. For example, a SAT that was mined recently could have a name like "PJKLYTFVUW." However, the system ensures that every combination of 10 characters or less is out there or will be out there someday, providing a massive pool of possibilities for collectors and enthusiasts.

Ordinals: A Battleground of Ideals?

The recent addition of NFTs to the Bitcoin mainnet through the Ordinals project has caused a rift within the Bitcoin community. While some Bitcoin purists see it as an attack on Bitcoin, others see it as a tongue-in-cheek gesture of trolling over-serious Bitcoin enthusiasts, also known as "Maxis."

The addition of NFTs to the Bitcoin mainnet challenges our perception of the first and most ubiquitous cryptocurrency. The divided response across the crypto community provides a clue as to why. The differing meanings that people ascribe to Bitcoin contribute to the uproar around Ordinals. For the libertarian-leaning Maxis, Bitcoin is a means of protecting savings and fighting inflation while also being a political statement. It is a way to instantly transfer money to anyone, cheaply and without permission.

It is important to note that the Bitcoin community is often associated with right-leaning freedom lovers, while the NFT community is perceived as composed of left-leaning creators. However, this is an oversimplification. To the average NFT enthusiast, Bitcoin is just another cryptocurrency, and the mainnet is just another digital playground. But adding NFTs to Bitcoin challenges the average Bitcoiner's identity, as they view Bitcoin as more than just a currency but also a symbol of their beliefs.

Additionally, as the inscribed SATs are now occupying the same block space as regular BTC transactions, there has been an increase in network fees which has led to some controversy in the Bitcoin community. However, proponents of Ordinals argue that this development could have a positive impact as fees play a vital role in incentivizing miners to ensure the security of the blockchain. In the long run, as block rewards decrease, network fees will become the primary driving force behind committing hash power to Bitcoin. The crypto community remains split on this issue, but one thing is clear: the Ordinals project has brought innovation to the Bitcoin space.

Closing

Despite the division, it is worth noting that the Ordinals project is an example of how the Bitcoin network continues to evolve and adapt. While some may view the inscribing of SATs with digital artifacts as a threat to the stability of the Bitcoin network, others see it as a way to expand the capabilities and potential of the network. In any case, it is a testament to the creativity and ingenuity of the crypto community. As we move forward, it will be interesting to see how the Bitcoin ecosystem adapts to the growing demand for inscribed SATs and how the network fees will be impacted by this development.

The growing adoption of the Ordinals protocol highlights the potential for Bitcoin to expand beyond simple value transfer and into the realm of digital art and collectibles. As more creators and developers explore the possibilities of Bitcoin NFTs, it will be interesting to see how this technology evolves and how it contributes to the Web3 ecosystem.

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